Taxes

Taxes

It was the famous American Benjamin Franklin that is credited with saying that in this world nothing can be said to be certain, except death and taxes.  However, while we have not yet figured out how to cheat death just yet, we can say that the taxes you pay will all depend upon how you structure your business and personal dealings, plus of course where you live as well.  Interestingly enough, the entire theme of taxation often invokes debate and emotion all depending upon where you line up in terms of your own political leanings.  Those considered to be more liberal minded will usually consider taxes as a necessity for an active government to provide for the social good whereas the more conservative minded will usually prefer to see less government interference and less taxation as well.

Taxes of course have been with us since the dawn of organized political social structures, and the age old question is how much is enough?  What is fair in terms of what you turn over of your salary or earnings and what do you get in return?  Quite interestingly enough, even previous forms of government headed by monarchs or other authoritarian rulers often taxed at a top rate of no more than 20 percent, and usually pegged the tax to goods value or transaction amount.  In other words, NOT a tax against income but rather a sort of import duty tax and or what we would deem to be a sales tax today, with taxes on land holdings as well that more often effected the nobility with large estates rather than individual citizenry.  Occasionally these governments did institute a one time or one off tax in order to finance war or some special project, but these were not perpetual and on going taxes.  So, how was it possible that a government could operate and complete it's tasks as a provider of services by simply taking a relatively small amount of taxes from the citizenry previously and yet today modern democratic governments take up to 70 percent of citizen's earnings and still cannot balance the budget?

Part of the answer can be found with the Germans.  Yes, the Germans.  While many Europeans today are divided over the Greek Crisis and resultant recalcitrant attitude or response from Berlin and other EU Parliamentary functionaries regarding the debt owed by Greece, it was a staunch right wing conservative German monarchist that gave us the modern day welfare state (and resultant higher taxes to go along with it).   And we of course are speaking about Otto Von Bismark, the one time Prussian military leader and statesman initially known for his blood and iron doctrine that was the catalyst behind the social welfare paradigm we know today.  How so?  Well it was Von Bismark that convinced the reigning monarch at the time to send a letter in 1881 to the German Parliament proposing the very first social welfare program for: those who are disabled from work by age and invalidity have a well-grounded claim to care from the state (his own words from the letter).  This new German welfare state paradigm that was created intended to provide for retirement benefits of workers and disability benefits as well.  All of this to be paid for out of worker contributions, employer contributions and both financial and administrative support from the government.  And incredibly enough, all of this a full 50 years before such social welfare programs were even considered by the 1930's depression era US President Franklin D. Roosevelt.   So, for those of you that might think this to be an American invention, the credit goes to a Prussian (German).  Of course the irony of all this was not lost as Von Bismarck had his many contemporary critics chastising him for such a socialist policy, in which case he replied: Call it socialism or whatever you like. It is the same to me.  But was the Prussian Statesman a true humanitarian or did he have some more practical and political reasons for doing all this?

There is an old saying that a dog would never bite the hand that feeds them, or at least never turn on his or her own respective master.  Thus, consider a few reasons why a populace might seek to revolt and what would be at stake for them personally.  Mr. Gerard Celente, the current editor and publisher of the Trends newsletter has famously said many times that when people have nothing to lose, they lose it (meaning all forms of social niceties or otherwise said respect for authority).  But the key term here is nothing to lose.  However what if you did have something to lose, in the form of your government pension check, disability check, food assistance check and whatever else the all encompassing welfare state was providing to you?  All of these social welfare benefits directly tie the recipient to the state as a child is tied to and dependent upon his parents for his own welfare and well being.  While children are often angry and hurt when parents scold them, they will certainly not rebel to such a point IF mom and dad get sufficiently angered to withdraw financial support.  Of course, if that financial support goes away then all bets are off the table.  Or yet another corollary and one possibility directly attributable to the current situation, the problem also comes into play when mom and dad still want to offer financial support, but are unable to do so financially (metaphorically speaking in terms of the government of course).

To be fair, various forms of government social welfare payments do not constitute the entire budget and the current financial situation we see today cannot be blamed upon such social welfare initiatives alone.  However, we can suggest that the previous role of government was to maintain law and order, and provide for the national defense.  Thus the limited and lower rates of taxation at the time to cover these basic services of government.  Contrast that to the 1881 German foray into a new role whereby government is responsible for all sorts of social (and now corporate) welfare, which opened the door to the leviathan government bureaucracy we all know too well today.  It was a justification and catalyst for government intervention into all sorts of things that have become almost intrusive.  However, this can only go one for so long, as someone needs to first earn the money in order to turn it over in taxes so it can be disbursed to someone else.  Former British Prime Minister Margaret Thatcher once said something to the effect that socialism works just fine right up until the point the government runs out of other people's money to give away (regardless if we are talking about social programs, corporate welfare, bail outs and so on).  We are at that point right now, we believe.  And for that reason we also tend to believe many governments will seek to tax and expropriate funds out of desperation from whomever is still solvent.  After all, the money has to come from somewhere, and with much of the manufacturing already gone to lower wage jurisdictions (and the related tax base with it) plus an anemic economy growing at only perhaps 2 percent annually, there is not much else to tap. 

Looking at the US Federal Government as just one example, the 2015 budget indicates spending of US$3.8 Trillion Dollars.  But, the US Government only will take in US$3.2 Trillion in 2015 from various forms of taxes, leaving a deficit of a little more than half a Trillion.  The real story though is where that money is spent as 62 percent of the US Federal Government budge is for so-called entitlement programs (health care, pensions and welfare).  With 6 percent allocated to paying interest only on the US government sovereign debt in 2015 (that amount is predicted to only go up in the future), that leaves 32 percent for everything else.  The most costly item of the entire budget continues to be the US Government social health care programs.  In it's recent July 22, 2015 annual Medicare Trustees Report, the trustees themselves report that the Medicare Hospital Insurance (HI) Trust Fund AGAIN FAILS the test of short-range financial adequacy, as its trust fund ratio is already below 100 percent and is expected to decline in a near continuous fashion until reserve depletion in 2030.  The Social Security and Medicare Boards of Trustees go on to comment in their combined report that: Lawmakers need to act soon to avoid automatic reductions in payments to Disability Insurance beneficiaries in late 2016. Social Security‚Äôs Disability Insurance (DI) Trust Fund now faces an urgent threat of reserve depletion, requiring prompt corrective action by lawmakers if sudden reductions or interruptions in benefit payments are to be avoided.  Lawmakers should address the financial challenges facing Social Security and Medicare as soon as possible. Taking action sooner rather than later will permit consideration of a broader range of solutions and provide more time to phase in changes so that the public has adequate time to prepare (end of quote from the report).  I repeat and I want you to pay attention to the comments SO THAT THE PUBLIC HAS ADEQUATE TIME TO PREPARE.  Ladies and Gentlemen, if they are insolvent now, where are they going to get the money from tomorrow?  And we have to wonder what are the similar financial balance sheets like for the Governments of Europe and elsewhere?

Our contention is they will seek to take it from the remaining solvent citizens still standing.  Where else would they get it from?  They could of course simply continue to run the presses Zimbabwe style, but that will not end well.  They could actually decide to cut back on government expenses and truly balance their respective budgets (miracles do happen or so we are told when one visits fantasy land in the Walt Disney theme parks).  They could also cut back on social welfare payments, but that would leave a whole lot of very angry citizens as a result.  No, we think they will be coming after everyone else, which means you might want to start thinking about ways to padlock your wallet (or you bank account). 




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